What Kind of Partner Does Mazda Need?

The auto maker’s dire finances could leave the door open to an equity partner, but a top executive says technology sharing is more likely. Meanwhile, the Mazda6 is being phased out in Flat Rock with no plans for North American production.

CHICAGO – Mazda President Takashi Yamanouchi stoked the furnace of speculation this month by saying four years of losses have forced the Japanese auto maker to “aggressively” seek an alliance partner.

But Jim O’Sullivan, president and CEO of Mazda North American Operations, says he doubts a corporate marriage between Mazda and another auto maker is in the works, and that a partnership to buy or sell a particular technology or address a regional market need seems more likely.

“It is looking for alliances relative to where we can strengthen the business over the long term,” O’Sullivan tells WardsAuto on the sidelines of the recent auto show here. “To think we are on a hunt to find someone to marry up with, no. But if it makes sense on a regional basis or a technology basis, absolutely.”

O’Sullivan points to current manufacturing partnerships with Ford in China, Thailand and Flat Rock, MI. Mazda also has a relationship with Suzuki for microcars and a deal to supply Nissan with versions of the Mazda5 for sale in Japan. Likewise, Mazda has a licensing agreement to purchase hybrid powertrain technology from Toyota.

“I think the question is, ‘Do we continue to look at further alliances with people and partner with them on very strategic types of issues?’” O’Sullivan says.

For instance, if Mazda were to target India as a strategic new market, it would need micro-cars because they make up 40% of the market there, he says. Mazda’s smallest vehicle currently is the Mazda2 subcompact, which is large by microcar standards.

But Mazda’s dire finances overall could leave the door open to an equity partner. In the third quarter, the auto maker reported a loss of ¥73 billion ($958 million), raising fears of a lowered debt rating.

President Yamanouchi left the door open as well in comments to journalists in Tokyo. “We are considering every option,” he was quoted as saying. “Nothing has been decided.”

Yamanouchi said at the time he was confident Mazda will return to profitability again in the next fiscal year, which begins April 1.

Ford owned 33.4% of Mazda a decade ago but reduced its stake to 3.5% in 2010.

O’Sullivan also does not discount the possibility of selling licensing agreements for Mazda’s new Skyactiv suite of gasoline and diesel engines, as well as chassis and transmission technologies, to other auto makers to boost the bottom line.

“Never say no on anything,” he says. “That could very well be a possibility. That could be a resource for us.”

Despite losses globally, O’Sullivan sees reasons for optimism, including this year’s launch of the CX-5 compact cross/utility vehicles and plans for a new vehicle-assembly plant in Mexico, set to begin production of the Mazda2 and Mazda3 in 2014. A joint venture has been formed with Sollers to produce Mazda cars for the Russian market as well.

O’Sullivan also sees Mazda benefiting financially from pulling Mazda6 production out of the Auto Alliance plant in Flat Rock later this year. Ford, which currently makes Mustangs there, has said it will use the facility to augment capacity for the all-new Fusion sedan.

Mazda will remain a 50-50 partner in the plant with Ford but will come out from under heavy fixed costs associated with producing its midsize sedan, he says.

Although Mazda will not be building vehicles in Flat Rock, O’Sullivan says the auto maker wants to maintain its stake in the plant because it is a regional hub for component sourcing across North America and to Japan.

After Mazda6 output ends in Michigan, the vehicle will be sourced for the U.S. from Hiroshima. Meanwhile, most Japanese auto makers are emphasizing production outside the home market to minimize the impact of the yen, which has appreciated 40% since 2008, sapping profits.

U.S. sales of the Mazda6 never came close to the auto maker’s goal of 100,000 units annually when the second-generation sedan launched in autumn 2008. Deliveries in 2011 totaled 35,711 vehicles, which placed it 10th in WardsAuto’s Upper Middle Car segment.

O’Sullivan says the new plant in Mexico will be flexible enough to assemble the next-generation Mazda6, but no such decision has been made.

Mazda’s pulling sedan assembly out of the Flat Rock plant should not be construed as a sign the auto maker is surrendering in a fiercely competitive C/D sector where the top players trump Mazda sales by a wide margin, O’Sullivan says.

“The fact is, we are going to be in C/D,” he says. “We are definitely not throwing our hands up.”

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